Last hurdles to global standards

Recent moves to use regional groups to influence accounting standard setting is speeding reforms to rule setting, but the US still needs to overcome years of prescriptive standards before there will be truly global standards.

Despite initial trepidation, the chairman of the Australian accounting standards board, Kevin Stevenson, says joining an Asian regional standard setter has proved a much better platform for influencing the IASB.

Australia and New Zealand were initially reluctant to join the Asian-Oceanian Standard Setters Group (AOSSG) set up three years ago as they were concerned it would be like the only other regional equivalent at the time, the European Financial Reporting Advisory Group (EFRAG).

“It is not a standard setting group. We didn’t want to enter into a body like that. However from the very beginning the culture of AOSSG fell into place pretty well and it is now seen globally as the best example of how the world [should] be regionalising.”

South America late last year set up the Latin American standard setters group GLASS modelled on AOSSG, and there are moves to set up an African equivalent.

“We are getting a lot more airplay with the IASB than we did previously,” says Stevenson, who is presently also the chair of AOSSG.

“They do understand there is a fair bit of firepower among the 25 countries – you have got Japan, China, South Korea, India, Turkey, the Middle East, South East Asia and Oceania. It is the largest region in the world and it is the fastest growing region in the world.”

Many of these countries are far more advanced than the US in adopting international standards.

One of the biggest roadblocks to the US adopting international accounting standards is the legacy of the existing Generally Accepted Accounting Principles.

Some see it as a conceptual problem, with the US still tied to a prescriptive way of writing standards and the rest of the world moving to a “principles-based” approach.

But Stevenson said FASB now largely accepted principles-based standard setting. The chief obstacle now is “the immense baggage of the US system” and transitioning from years of prescriptive GAAP rules a much smaller set of IFRS rules that require more judgement and interpretation on the part of companies that must adhere to them.

“I think if [the IASB and the FASB] were both starting a new project from scratch on which neither had a standard, they probably would be aiming for the same level of principle

“[But] there’s 10 times as many pages in US GAAP as in IFRS. It is the biggest challenge that the [Securities and Exchange Commission] and the FASB faces in adopting IFRS – how do you turn off 25,000 pages of GAAP and turn on 2,500 pages of IFRS?”